Abatement Innovation in a Cournot Oligopoly: Emission Versus Output Tax Incentives

29 Pages Posted: 9 Nov 2016

See all articles by Naoto Aoyama

Naoto Aoyama

Aomori Public University

Emilson Delfino Silva

University of Alberta - Department of Marketing, Business Economics & Law

Date Written: September 29, 2016

Abstract

This study compares energy and emission taxes used to control pollution and provide incentives for the adoption of an advanced abatement technology in a Cournot oligopoly. We examine multistage games where the government may intervene in order to maximize social welfare by setting an environmental tax rate. When the government intervenes, it levies either an energy tax or an emission tax. We show that the effectiveness of either type of tax depends on the shape of the multi-product technology. In the absence of economies of scope in the production of energy and abatement, the energy tax reduces pollution but is ineffective in promoting technological change. The emission tax reduces pollution and is effective in promoting technological change for sufficiently small fixed costs of adoption. In the presence of economies of scope, firms may adopt the efficient technology even in the absence of taxation. When taxation is necessary for innovation, both types of taxes are effective. However, the energy tax outperforms the emission tax in terms of innovation incentives.

Keywords: externalities, output taxes, emission taxes, technology adoption, Cournot duopoly

JEL Classification: D210, D620, D780, L130, H230, O330

Suggested Citation

Aoyama, Naoto and Delfino Silva, Emilson, Abatement Innovation in a Cournot Oligopoly: Emission Versus Output Tax Incentives (September 29, 2016). CESifo Working Paper Series No. 6094. Available at SSRN: https://ssrn.com/abstract=2866836

Naoto Aoyama

Aomori Public University ( email )

153-4, Yamazaki
Aomori, 030-0196
Japan

Emilson Delfino Silva (Contact Author)

University of Alberta - Department of Marketing, Business Economics & Law ( email )

Edmonton, Alberta T6G 2R6
Canada

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